Crafting And Executing Strategy - GBV

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Arthur 1. Thompson, Jr.The University of AlabamaJL J. StricUanil usThe University of AlabamaJohn E. §ambleUniversity of South AlabamaCrafting andExecuting StrategyText andReadings17TH EDITIONMcGraw-HillIrwinBoston Burr Ridge, IL Dubuque, IA New York San Francisco St. LouisBangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico CityMilan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

Part One Concepts and Techniques for Craftingand Executing Strategy 3Section A: Introduction and Overview1. What Is Strategy and Why Is It Important?What Do We Mean by Strategy?46Strategy and the Quest for Competitive Advantage 7Identifying a Company's Strategy 10Why a Company's Strategy Evolves over Time 11A Company's Strategy Is Partly Proactive and Partly ReactiveStrategy and Ethics: Passing the Test of Moral Scrutiny1113The Relationship between a Company's Strategy and Its Business ModelWhat Makes a Strategy a Winner?1415Why Are Crafting and Executing Strategy Important?17Good Strategy Good Strategy Execution Good Management17Illustration Capsules1.1. Starbucks' Strategy in the Specialty Coffee Industry 81.2. Microsoft and Red Hat: Two Contrasting Business Models162. Leading the Process of Crafting and ExecutingStrategy 22What Does the Strategy-Making, Strategy-Executing Process Entail?Phase 1: Developing a Strategic Vision24How a Strategic Vision Differs from a Mission StatementLinking the Vision/Mission with Company Values 29Communicating the Strategic Vision 30Phase 2: Setting Objectives2833The Imperative of Setting Stretch Objectives33What Kinds of Objectives to Set—The Need for a Balanced ScorecardPhase 3: Crafting a Strategy243337Strategy Making Involves Managers at All Organizational LevelsA Company s Strategy-Making Hierarchy 38A Strategic Vision Objectives Strategy A Strategic PlanPhase 4: Implementing and Executing the Strategy374141Phase 5: Evaluating Performance and Initiating Corrective Adjustments43

xxxviTable of ContentsLeading the Strategic Management Process43Staying on Top of How Well Things Are Going 44Making Sure a Company Has a Good Strategic Plan 45Putting Constructive Pressure on Organizational Units to AchieveGood Results and Operating Excellence 4 7Pushing Corrective Actions to Improve Both the Company's Strategyand How Well It Is Being Executed 4 7Leading the Development of Better Competencies and Capabilities 48Displaying Ethical Integrity and Undertaking Social ResponsibilityInitiatives 48Corporate Governance: The Role of the Board of Directors in the StrategyMaking, Strategy-Executing Process 49Illustration Capsules2.1. Examples of Strategic Visions—How Well Do They Measure Up?2.2. Yahoo's Core Values27312.3. Examples of Company Objectives35Section B: Core Concepts and Analytical Tools3. Evaluating a Company's External Environment 54The Strategically Relevant Components of a Company's ExternalEnvironment 56Thinking Strategically about a Company's Industry and CompetitiveEnvironment 58Question 1: What Are the Industry's Dominant Economic Features?Question 2: How Strong Are Competitive Forces?5860Competitive Pressures Created by the Rivalry among Competing SellersCompetitive Pressures Associated with the Threat of New Entrants 66Competitive Pressures from the Sellers of Substitute Products 69Competitive Pressures Stemming from Supplier Bargaining Powerand Supplier—Seller Collaboration 70Competitive Pressures Stemming from Buyer Bargaining Powerand Seller-Buyer Collaboration 74Is the Collective Strength of the Five Competitive Forces Conduciveto Profitability? 7861Question 3: What Factors Are Driving Industry Change and What ImpactsWill They Have? 79. .The Concept of Driving Forces 79Identifying an Industry s Driving Forces 80Assessing the Impact of the Driving Forces 85Making Strategy Adjustments to Take the Impact of the Driving Forces intoAccount 85Question 4: What Market Positions Do Rivals Occupy—Who Is StronglyPositioned and Who Is Not? 86Using Strategic Group Maps to Assess the Market Positionsof Key Competitors 86 What Can Be Learned from Strategic Group Maps? 87

Table of ContentsQuestion 5: What Strategic Moves Are Rivals Likely to Make Next?89Identifying Competitors' Strategies and Resource Strengthsand Weaknesses 90Predicting Rivals 'Next Moves 91Question 6: What Are the Key Factors for Future CompetitiveSuccess? 92Question 7: Does the Outlook for the Industry Offer the Companya Good Opportunity to Earn Attractive Profits? 94illustration Capsules3.1. Comparative Market Positions of Selected Automobile Manufacturers:A Strategic Group Map Application 884. Evaluating a Company's Resources and CompetitivePosition 100Question 1: How Well Is the Company's Present Strategy Working?102Question 2: What Are the Company's Resource Strengths and Weaknesses,and Its External Opportunities and Threats? 106Identifying Company Resource Strengths, Competencies, and CompetitiveCapabilities 106Identifying Company Resource Weaknesses, Missing Capabilities, and CompetitiveDeficiencies111Identifying a Company's External Market Opportunities 111Identifying the External Threats to Profitability 113What Can Be Learned from a SWOT Analysis? 113Question 3: Are the Company's Prices and Costs Competitive?116The Concept of a Company Value Chain 116Why the Value Chains of Rival Companies Often Differ 117The Value Chain System for an Entire Industry 119Activity-Based Cost Accounting: A Tool for Determining the Costs of ValueChain Activities 121Benchmarking: A Tool for Assessing Whether a Company's Value ChainActivities Are Competitive 122Strategic Options for Remedying a Cost Disadvantage124Translating Proficient Performance of Value Chain Activities intoCompetitive Advantage 126Question 4: Is the Company Competitively Stronger or Weaker ThanKey Rivals? 128Interpreting the Competitive Strength Assessments130Question 5: What Strategic Issues and Problems Merit Front-BurnerManagerial Attention? 131Illustration Capsules4.1. Estimated Value Chain Costs for Recording and Distributing Music CDsthrough Traditional Music Retailers 1214.2. Benchmarking and Ethical Conduct 124

Table of ContentsSection C: Crafting a Strategy5. The Five Generic Competitive Strategies:Which One to Employ? 138The Five Generic Competitive StrategiesLow-Cost Provider Strategies140140The Two Major Avenues for Achieving a Cost Advantage 141The Keys to Success in Achieving Low-Cost Leadership 147When a Low-Cost Provider Strategy Works Best 148The Pitfalls of a Low-Cost Provider Strategy 148Broad Differentiation Strategies149Types of Differentiation Themes 149Where along the Value Chain to Create the Differentiating Attributes 150The Four Best Routes to Competitive Advantage via a Broad DifferentiationStrategy 151The Importance of Perceived Value and Signaling Value 152When a Differentiation Strategy Works Best 152The Pitfalls of a Differentiation Strategy 153Best-Cost Provider Strategies154When a Best-Cost Provider Strategy Is Appealing155The Big Risk of a Best-Cost Provider Strategy 155Focused (or Market Niche) Strategies156A Focused Low-Cost Strategy 157A Focused Differentiation Strategy 157When a Focused Low-Cost or Focused Differentiation StrategyIs Attractive 158The Risks of a Focused Low-Cost or Focused Differentiation Strategy159The Contrasting Features of the Five Generic Competitive Strategies:A Summary 160illustration Capsules5.1. How Wal-Mart Managed Its Value Chain to Achieve a Huge Low-CostAdvantage over Rival Supermarket Chains 1465.2. Toyota's Best-Cost Provider Strategy for Its Lexus Line5.3. Vizio's Focused Low-Cost Strategy1561585.4. Progressive Insurance's Focused Differentiation Strategy in AutoInsurance 159Supplementing the Chosen Competitive Strategy:Other Important Business Strategy Choices 164Strategic Alliances and Partnerships166Why and How Strategic Alliances Are Advantageous 168Capturing the Benefits of Strategic Alliances 169Why Many Alliances Are Unstable or Break Apart 170The Strategic Dangers of Relying Heavily on Alliances and Partnerships171

Table of ContentsMerger and Acquisition Strategies171Why Mergers and Acquisitions Sometimes Fail to Produce AnticipatedResults 173Vertical Integration Strategies: Operating across More Stages of the IndustryValue Chain 175The Advantages of a Vertical Integration Strategy 175The Disadvantages of a Vertical Integration Strategy 177Weighing the Pros and Cons of Vertical Integration 178Outsourcing Strategies: Narrowing the Boundaries of the BusinessWhen Outsourcing Strategies Are AdvantageousThe Big Risk of an Outsourcing Strategy 180179Business Strategy Choices for Specific Market etingCompeting178181in Emerging Markets 181in Rapidly Growing Markets 184in Slow-Growth, Mature Markets 185in Stagnant or Declining Markets 189in Turbulent, Fast-Changing Markets 191in Fragmented Industries 195Timing Strategic Moves—To Be an Early Mover or a Late Mover?199When Being a First-Mover Leads to Competitive Advantage 199Blue Ocean Strategy: A Powerful First-Mover Approach 200When Being a Late-Mover Can Be Advantageous 201Deciding Whether to Be an Early Mover or a Late Mover 202Illustration Capsules6.1. Clear Channel Communications: Using Mergers and Acquisitions toBecome a Global Market Leader 1746.2. PepsiCo's Strategy for Growing Rapidly in Mature, Slow-GrowthMarkets 1886.3. Just Play Golf's Strategy in the Fragmented Market for GolfAccessories 1986.4. Amazon.com's First-Mover Advantage in Online Retailing2017. Strategies for Competing in Foreign Markets 206Why Companies Expand into Foreign Markets208The Difference between Competing Internationally and CompetingGlobally 208Factors That Shape Strategy Choices in Foreign Markets209Cross-Country Differences in Cultural, Demographic, and MarketConditions 209Gaining Competitive Advantage Based on Where Activities Are LocatedThe Risks of Adverse Exchange Rate Shifts 211The Impact of Host Government Policies on the Local BusinessClimate 212The Concepts of Multicountry Competition and Global Competition210213

xlTable of ContentsStrategy Options for Entering and Competing in Foreign Markets215Export Strategies 215Licensing Strategies 216Franchising Strategies 216Strategic Alliances and Joint Ventures with Foreign Partners 216Choosing between a Localized Multicountry Strategy and a Global StrategyThe Quest for Competitive Advantage in Foreign Markets220224Using Location to Build Competitive Advantage 224Using Cross-Border Transfers of Competencies and Capabilities to BuildCompetitive Advantage 227Using Cross-Border Coordination to Build Competitive Advantage 228Strategies to Compete in the Markets of Emerging Countries228Strategy Options for Emerging-Country Markets 230Defending against Global Giants: Strategies for Local Companies in EmergingMarkets 231Illustration Capsules7.1. Five Examples of Cross-Border Strategic Alliances 2187.2. Multicountry Strategies at Electronic Arts, Coca-Cola, and BP 2257.3. Yum! Brands' Strategy for Becoming the Leading Food Service Brand inChina 2297.4. How Ctrip Successfully Defended against Multinationals to BecomeChina's Largest Online Travel Agency 2348. Diversification: Strategies for Managing a Groupof Businesses 238jWhen to Diversify241Building Shareholder Value: The Ultimate Justification for DiversifyingStrategies for Entering New BusinessesAcquisition of an Existing BusinessInternal Start-Up 243Joint Ventures 243241242243Choosing the Diversification Path: Related versus Unrelated BusinessesThe Case for Diversifying into Related Businesses244Identifying Cross-Business Strategic Fits along the Value Chain 246Strategic Fit, Economies of Scope, and Competitive Advantage 249The Case for Diversifying into Unrelated BusinessesThe Merits of an Unrelated.Diversification StrategyThe Drawbacks of Unrelated Diversification254250252Combination Related-Unrelated Diversification StrategiesEvaluating the Strategy of a Diversified Company257Step 1: Evaluating Industry Attractiveness258Step 2: Evaluating Business-Unit Competitive Strength261256244

Table of ContentsStep 3: Checking the Competitive Advantage Potential of Cross-BusinessStrategic Fits 266Step 4: Checking for Resource Fit 266Step 5: Ranking the Performance Prospects of Business Units and Assigning aPriority for Resource Allocation 2 70Step 6: Crafting New Strategic Moves to Improve Overall CorporatePerformance 271Illustration Capsules8.1. Related Diversification at Darden Restaurants, L'Oreal, and Johnson &Johnson 2498.2. Unrelated Diversification at General Electric, Fortune Brands, and UnitedTechnologies 2538.3. Managing Diversification at Johnson & Johnson: The Benefits of CrossBusiness Strategic Fits 2748.4. The Corporate Restructuring Strategy That Made VF the Star of theApparel Industry 2798.5. The Global Scope of Four Prominent Diversified MultinationalCorporations 2809. Ethical Business Strategies, Social Responsibility,and Environmental Sustainability 288What Do We Mean by Business Ethics? 290How and Why Ethical Standards Impact the Tasks of Crafting and ExecutingStrategy 290Where do Ethical Standards Come From—Are They Universal or Dependenton Local Norms and Sjtuational Circumstances? 291The School of Ethical Universalism 292The School of Ethical Relativism 292Ethics and Integrative Social Contracts Theory295The Three Categories of Management Morality 297Evidence of Managerial Immorality in the Global Business Community298Drivers of Unethical Strategies and Business Behavior 299Overzealous Pursuit of Personal Gain, Wealth, and Self-interest300Heavy Pressures on Company Managers to Meet or Beat Earnings Targets 301Company Cultures That Put the Bottom Line Ahead of Ethical Behavior 302Why Ethical Strategies Matter 304The Moral Case for an Ethical Strategy 304The Business Case for an Ethical Strategy 304Approaches to Managing a Company's Ethical Conduct 307The Unconcerned or Nonissue Approach 307The Damage Control Approach 307The Compliance Approach 309The Ethical Culture Approach 309Why Companies Change Their Ethics Management Approach310xli

xliiTable of ContentsSocial Responsibility and Corporate Citizenship Strategies310What Do We Mean by Social Responsibility and Corporate Citizenship? 312Environmental Sustainability Strategies: A New and Growing Priority 314Crafting Social Responsibility and Sustainability Strategies 316The Moral Case for Corporate Social Responsibility and EnvironmentallySustainable Business Practices 318The Business Case for Socially Responsible Behavior and Sustainable BusinessPractices 319Illustration Capsules9.1. A Test of Your Business Ethics3069.2. How General Electric's Top Management Built a Culture That Fuses HighPerformance with High Integrity 311Section D: Executing the Strategy10. Building an Organization Capable of Good StrategyExecution 326A Framework for Executing Strategy329The Principal Managerial Components of the Strategy ExecutionProcess 329Building an Organization Capable of Good Strategy ExecutionStaffing the Organization331332Putting Together a Strong Management Team 332Recruiting and Retaining Capable Employees 333Building Core Competencies and Competitive Capabilities336The Three-Stage Process of Developing and Strengthening Competenciesand Capabilities 337The Strategic Role of Employee Training 339From Competencies and Capabilities to Competitive Advantage 341Execution-Related Aspects of Organizing the Work Effort341Deciding Which Value Chain Activities to Perform Internally and Which toOutsource 342Making Strategy-Critical Activities the Main Building Blocks of the OrganizationStructure 345Determining the Degree of Authority and Independence to Give Each Unitand Each Employee 346Providing for Internal Cross-Unit Coordination 349Providing for Collaboration with Outside Suppliers and StrategicAllies 351Current Organizational Trends 352Illustration Capsules10.1. How General Electric Develops a Talented and Deep ManagementTeam 33410.2. Toyota's Legendary Production System: A Capability That Translatesinto Competitive Advantage 340

Table of Contents11. Managing Internal Operations: Actions That PromoteGood Strategy Execution 356Marshalling Resources Behind the Drive for Good Strategy ExecutionInstituting Policies and Procedures That Facilitate Strategy ExecutionAdopting Best Practices and Striving for Continuous Improvement358359361Identifying and Incorporating Best Practices to Improve Operating Effectivenessand Efficiency 361Business Process Reengineering, Six Sigma Quality Programs, and TQM: Toolsfor Promoting Operating Excellence 363Capturing the Benefits of Initiatives to Improve Operations 368Installing Information and Operating Systems370Instituting Adequate Information Systems, Performance Tracking, andControls 372Exercising Adequate Controls over Empowered Employees 372Tying Rewards and Incentives to Good Strategy Execution373Strategy-Facilitating Motivational Practices 3 73Striking the Right Balance between Rewards and Punishment 375Linking the Reward System to Strategically Relevant Performance Outcomes . 377Illustration Capsules11.1. Whirlpool's Use of Six Sigma to Promote Operating Excellence 36611.2. What Companies Do to Motivate and Reward Employees 37611.3. Nucor and Bank One: Two Companies That Tie Incentives Directly toStrategy Execution 37812. Corporate Culture and Leadership: Keys to GoodStrategy Execution 384Instilling a Corporate Culture That Promotes Good Strategy ExecutionIdentifying the Key Features of a Company s Corporate Culture 386Strong versus Weak Cultures 390Unhealthy Cultures 392High-Performance Cultures 394Adaptive Cultures 395Culture: Ally or Obstacle to Strategy Execution? 396Changing a Problem Culture 398Grounding the Culture in Core Values and Ethics 403Establishing a Strategy-Culture Fit in Multinational and GlobalCompanies 407Leading the Strategy-Execution Process408Making Corrective Adjustments in Timely Fashion409A Final Word on Managing the Process of Crafting and ExecutingStrategy 410Illustration Capsules12.1. The Corporate Cultures at Google and Alberto-Culver12.2. Changing the "Old Detroit" Culture at Chrysler 403387386xliii

xlivTable of ContentsPart Two Readings in Crafting and ExecutingStrategy 415Readings1 . Can You Say What Your Strategy Is? 416David J. Collis, Harvard Business SchoolMichael G. Rukstad, Harvard Business SchoollL. Enabling Bold Visions 425Douglas A. Ready, London Business SchoolJay A. Conger, London Business School3 . Location, Location: The Geography of Industry ClustersHolger Schiele, Leibniz University4344 . Identifying Valuable Resources 442CliffBowman, Cranfield School of ManagementVeronique Ambrosini, Cranfield School of Management5 . The Battle of the Value Chains: New Specialized versus OldHybrids 454Gillis Jonk, A. T. KearneyMartin Handschuh, A. T. KearneySandra Niewiem, A. T. Kearney6 . Playing Hardball: Why Strategy Still MattersGeorge Stalk, The Boston Consulting Group7.460Hitting Back: Strategic Responses to Low-Cost RivalsJim Morehouse, A. T. KearneyBob O 'Meara, A. T. KearneyChristian Hagen, A. T. KearneyTodd Huseby, A. T. Kearney4668 . Limited-Potential Niche or Prospective Market Foothold?Five Tests 476Ken Hutt, Deloitte ConsultingRuben Gravieres, Deloitte ConsultingBetosini Chakraborty, Deloitte Consulting9 . Value Innovation: A Leap into the Blue Ocean 481W. Chan Kim, INSEADRenee Mauborgne, INSEAD1 0 . Racing to Be 2nd: Conquering the Industries of the FutureCostas Markides, London Business SchoolPaul A. Geroski, London Business School1 1 . Globalization Is an Option, Not an Imperative. Or,Why The World Is Not Flat 493Pankaj Ghemawat, Harvard Business School487

Table of Contents1 2 . The Challenge for Multinational Corporations in China: Think Local,Act Global 500Seung Ho Park, Samsung Economic Reseawrch InstituteWilfried R. Vanhonacker, HKUST Business School1 3 . How to Win in Emerging MarketsSatish Shankar, Bain & Co.Charles Ormiston, Bain & Co.Nicolas Bloch, Bain & Co.Robert Schaus, Bain & Co.Vijay V

Good Strategy Good Strategy Execution Good Management 17 Illustration Capsules 1.1. Starbucks' Strategy in the Specialty Coffee Industry 8 1.2. Microsoft and Red Hat: Two Contrasting Business Models 16 2. Leading the Process of Crafting and Executing Strategy 22 What Does the Strategy-Making, Strategy-Executing Process Entail? 24

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